Trump just took the China trade war to a new level, and it could be a ‘gut punch’ for Apple, analyst says

  • President Donald Trump’s newly announced 10% tariffs on $300 billion worth of Chinese goods could weaken iPhone demand and negatively affect the company’s earnings.
  • In a new note outlining the possible ramifications of the tariffs on Apple, analysts at Wedbush Securities called the move a “potential gut punch” for the company.
  • If Apple absorbs the tariffs, it could negatively affect the company’s earnings for its 2020 fiscal year by roughly 4%, the analysts estimated.
  • The new tariffs, announced Thursday and set to take effect September 1, come after reports indicated Apple wanted to move production of the Mac Pro from the United States to China.
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President Donald Trump’s decision to impose new 10% tariffs on $300 billion worth of Chinese goods could spell trouble for Apple, threatening to weaken iPhone demand and negatively affect the company’s earnings.

In a new note outlining the possible ramifications of the tariffs on Apple, the Wedbush Securities analysts Daniel Ive and Strecker Backe called the move a “potential gut punch” for the company. If Apple fully absorbs the tariffs, which function as taxes on US imports from China, where most of Apple’s products are made, it could negatively affect the company’s earnings per share by roughly 4% in its 2020 fiscal year, the analysts estimated.

Should Apple pass the tariffs on to consumers in the form of higher prices, it could weaken iPhone demand by about 6 million to 8 million units, based on Wedbush’s analysis over the next 12 months driven by its overall unit forecast of 185 million iPhones for the 2020 fiscal year.

“After Cook & Co. have navigated significant noise and headwinds the last thing the bulls wanted to see today was this news from the Trump administration as Apple is clearly caught in the crossfires between DC and Beijing,” the analysts wrote in the note.

Read more: Don’t buy a new iPhone right now

Wedbush maintains its outperform rating for Apple.

Apple did not immediately respond to Business Insider’s request for comment about how the new tariffs might affect its business.

It’s not the first time Wall Street has discussed the consequences Apple could face as a result of the trade dispute with China. Back in May, a team of analysts at Morgan Stanley led by Katy Huberty suggested that the price of the $1,000 iPhone XS could increase by $160 because of the 25% tariffs on $200 billion worth of Chinese goods the Trump administration previously introduced.

Trump announced on Twitter on Thursday that tariffs of 10% on an additional $300 billion worth of Chinese goods would take effect September 1.

China is critical for Apple for two reasons: The company relies on facilities in China to manufacture products like the iPhone, and the “greater China” region, which includes Taiwan and Hong Kong, is Apple’s third-largest market behind the Americas and Europe.

Reports from Bloomberg and The Wall Street Journal had also suggested that Apple was planning to move production of the Mac Pro, which had been the only major Apple product made in the United States, to China. But CEO Tim Cook recently said on the company’s earnings call that the company wanted to continue making the Mac Pro in the US, following a report from Bloomberg that the company had sought exemptions from Trump’s China tariffs on components for the new computer.

Apple has considered shifting some production from China to India and Vietnam, according to reports from Bloomberg and Reuters.

But doing so would represent a huge undertaking. Ives previously told Business Insider that in a best-case scenario Apple may be able to move just 5% to 7% of the production of some iPhone models to India over the next 12 months.

“Apple has really bet the company’s production on China and on Foxconn,” he told Business Insider in June. “It would be like General Motors or Ford saying we’re going to move away from Detroit.”